The Real Estate (Regulation And Development) Act, 2016

The Real Estate (Regulation And Development) Act, 2016

History:

In the year 2009 i.e. in the UPA II Regime, first time there was a need felt for the regulation in the real estate industry.

It was at the National Conference of Housing Ministers of States and Union Territories in January 2009, that a proposal for a law for real estate was first debated and discussed.

Real Estate Regulatory Authority (RERA) Bill was in the year 2013. In December 2015, the Union Cabinet of India had approved 20 major amendments to the bill based on the recommendations of a Rajya Sabha committee that examined the bill.

The Bill had been then referred to a select committee, which had given its report in July 2015.

Then the bill got approval first from the Rajya Sabha on 10 March 2016 and then by the Lok Sabha on 15 March 2016 and the bill has received the assent of the President on the 25 March, 2016 and hence became an act called as the THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 (Herein after referred to as ‘the act’).

 

Is it a State Matter or a Central Matter:

On 1 May, 2016, 59 sections out of 92 were notified and the remaining sections were notified from 1 May, 2017.

The states are required to draft and notify the relevant rules applicable for their state by 01 May, 2017.

Therefore, it is like that the Central Govt. has enacted the act and the necessary rules will be notified by the respective State Govt.

So, there might be variation with respect to the provisions of the rules in each state, however, the same needs to be consistent with the act passed by the Union Govt., else the same will be held as ultra virus.

Also, many State Governments have their own law with respect to the real estate matters.

Now, the question that emerges is that with respect to the matters as mentioned above, whether the bill holds the Constitutional validity or not? Let’s understand this issue in detailed manner as below:

Entry 18 of List II of the Seventh Schedule of the Constitution of India gives the states the right to legislate over inter alia, land, rights in or over land and colonization.

The RERA however, has been enacted by the Centre by the power vested in it by virtue of Entries 6 and 7 in List III (Concurrent List) of the Seventh Schedule of the Constitution dealing with contracts and the transfer of property. Both Central government and state governments can legislate on matters under the concurrent list, and Article 254 of the Constitution specifically provides that central laws will prevail over state laws on matter in the concurrent list.

Accordingly, RERA has an over-riding effect on conflicting state laws. Interestingly, the RERA also repeals the Maharashtra Housing (Regulation and Development) Act (MHRDA) as defined below, despite the MHRDA having received Presidential assent instead of the assent of the Governor. The same has been specifically mentioned vide Section 92 of The Real Estate (Regulation and Development) Act, 2016.

Article 254 (2) of the Constitution mentions that state laws under the concurrent list which have received Presidential assent shall prevail in the state; however, the proviso to this Article gives plenary powers to the Centre to amend, vary or repeal the particular state law.

 

Analysis of the Provisions of the Law:

After analyzing the basics and the constitutional validity of the law, now let us understand the provisions of the law in detail.

The Act is applicable to the whole of India except the State of Jammu and Kashmir.

The provisions of the law are discussed here mainly with respect to the Rules notified by the Govt. of Gujarat called as ‘the rules’.

The act was introduced keeping in mind the following two matters:

  1. To promote the real estate sector
  2. To protect the interest of the consumers.

The analysis is segregated into two parts viz. First the Promoter of Real estate project and second is the real estate agent.

 

(I) REAL ESTATE PROMOTER:

Transitional Provisions:

Proviso to sub section 1 of section 3 of the act specified that the projects that are ongoing on the date of commencement of this act and for which the completion certificate has not been issued, the promoter shall make an application to the authority for registration of the said project within a period of three months from the date of commencement of the act.

Registration:

Section 3 of the Act provides that no promoter shall advertise, market, book, sell or offer for sale or invite persons to purchase in any manner any plot, apartment or building in any real estate project without registering the real estate project with the competent authority.

Therefore, all the malpractices in the promotion or marketing of the real estate scheme are now prohibited as the promotion cannot be done unless registration has been obtained and in registration, complete set of details are required to be produced.

The definition of the promoter as defined in Section 2(zk) of the act is very vide and covers almost everything.

Exemption from registration:

Sub section 2 of section 3 of the act specifies following situations where no registration of real estate project shall be required if any of the following condition is satified:

  1. Area of land < 500 Sq. Meters,
  2. of Apartments < 8 Apartments,
  3. The project has been given the completion certificate,
  4. There is renovation, redevelopment or repair where it does not involve any marketing or new allotments.

Procedure for registration:

The application for registration shall be in writing as per Form ‘A’ which shall be submitted in triplicate containing the information and the documents as specified.  (The application will be submitted online after the application procedure is made web based)

Along the application for registration, following fees is required to be paid:

Sr. No. Particulars

 

Fees
1. For Group Housing Project

 

–      Area of Land < 1000 Sq. Mtr.

–      Area of Land > 1000 Sq. Mtr.

 

 

Rs. 5 per Sq. Mtr

Rs. 10 per Sq. Mtr

Max. Rs. 5 Lacs.

2. For Mixed Development (Residential and Commercial)

 

–      Area of Land < 1000 Sq. Mtr.

–      Area of Land > 1000 Sq. Mtr.

 

 

 

Rs. 10 per Sq. Mtr

Rs. 15 per Sq. Mtr

Max. Rs. 7 Lacs.

3. For Commercial projects

 

–      Area of Land < 1000 Sq. Mtr.

–      Area of Land > 1000 Sq. Mtr.

 

 

Rs. 20 per Sq. Mtr

Rs. 25 per Sq. Mtr

Max. Rs. 10 Lacs.

4. For Plotted Development Projects Rs. 5 per Sq. Mtr.

Max. Rs. 2 Lacs.

 

Along with application, a declaration is to be given as per Form B.

If the promoter withdraws the application before the expiry of the period of 30 days, then registration fee to the extent of 10% paid as above or Rs. 50,000/- whichever is higher, will be retained by the Govt. as the processing fee.

The registration certificate will be granted in Form C.

The rejection of the application will be informed to the application in Form D.

The application for extension of registration is required to be submitted in Form E.

The grant of extension of registration shall be in Form F.

If everything is found in order on receipt of the application, the authority shall within a period of thirty days pass an order either granting the registration or rejecting the registration.

If the registration is being granted then a registration number along with the Login Id and password will be provided.

If no action is taken within a period of thirty days, then there will be deemed registration.

After obtaining the registration, the task is not over. The real task is yet to start. This is so as Section 11(1) of the act mandates the promoter to quarterly update the various details in the website. So that will be a real tough task.

Revocation of Registration:

The authority can revoke the registration

  1. Either on receipt of a complaint or
  2. Suo moto

After being satisfied that

  1. The promoter makes default in complying with the provisions of the act and rules.
  2. The promoter violates terms and conditions of the approval given by the competent authority
  3. The promoter is involved in any kind of unfair practice or irregularities.

Of course, the principle of natural justice is to be followed before revocation of registration.

Consequences of revocation of registration:

  1. Promoter will be debarred from accessing its website in relation to that project
  2. His name will be in the list of defaulters with his photograph
  3. The matter will be informed to other Real Estate Regulatory Authority in other states and in other Union Territories.
  4. The authority will facilitate the remaining development work.
  5. The authority will freeze the bank account.

Separate bank account and withdrawal from the same:

As per Section 4(2)(d) of the act, promoter is required to open a separate bank account in a scheduled bank to cover the cost of construction and cost of land.

In the separate bank account, seventy per cent (70%) of the amounts realized for the real estate project from the allottees, from time to time shall be deposited.

It also provides for withdrawal of amount from the separate bank account to cover the cost of the project only in proportion to the percentage of completion of the project.

The withdrawal is permitted only after obtaining a certificate from an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of the project.

This is the real crux of the entire act. Earlier, what was happening was that the promoter starts the project, collecting the money and investing the same to the other project. Money of other project is then invested in another project, so forth and so on.

So, the interest of the real purchaser was not protected and in case there is failure in any scheme of the promoter, it will affect other schemes also. That’s why the Govt. has brought this provision in the law.

How much advance can be obtained from purchasers?

The condition prevalent till now was that the promoters are obtaining advance money from the customers without any ceiling limit. Sometimes only 5-10% money would be pending and still there were no agreement for sale has been entered into by the parties.

However, under the new regime Section 13 of the act has specified that the promoter shall not accept a sum of more than 10% of the cost of apartment, plot or a building as an advance payment from a person without entering into a written agreement for sale and register the said agreement for sale.

So, now the another question is that till now the agreement to sale was effected in two ways viz. notarized agreement to sale and second one is the registered agreement to sale.

So, in a strict interpretation of the Section 13 of the act, now every agreement to sale is required to be registered only.

Rule 9 of the said rules has also provided that the agreement for sale shall be in the form as prescribed by the authority.

There may be variation to the terms as agreed by the promoter and the allottee by the variation should not violate the provisions of the act or the rules and regulations framed thereunder.

Change in the sanctioned plans and project specification: 

Till now, there was no proper regulation in case of change in the sanctioned plans and project specification by the promoter and the process for going to the court of law is very costly and the time consuming.

However, Section 14 of the Act has mandated that the project shall be developed and completed in accordance with the sanctioned plans, layout plans and specifications.

And in case of any additions or alterations in that except the minor additions or alternations, the consent of the at least two-thirds of the allottees, other than promoter is required to be obtained.

Also, in the explanation, it has been very specifically mentioned that the allottee, irrespective of number of apartments, flats, plots books by him in the name of family, will be treated as one allottee only.

The explanation inserted in the said section is very interesting because it counts the allottee as the person per family disregarding the fact of number of apartments owned by him. So, voting power will be per person and not per allotment.

Transfer of the real estate project to a third party:

Many a times, it was happening like that the project is introduced by one promoter and subsequently it is being transferred to another promoter and the purchasers have no knowledge of the same.

However, now that practice is not valid. Promoter is required to obtain written consent of at least two third allottees, except the promoter and also the prior written approval of the authority before transferring the real estate project to a third party.

Promoter fails to complete or is unable to give possession of an apartment, plot or building:

The situation till today was that the promoter will give deadline for completion of the project or for giving of the possession.

Looking to the circumstances, he may change the deadline as many times as he want to do the same without any kind of any approval from any authority from the allottees.

After enactment of this act, this is not possible. Now, if a promoter fails to complete or is unable to give possession of an apartment, plot or building then,

  1. He is liable on demand to the allottees, in case the allotee wishes to withdraw from the project, return the amount received by him along with interest and compensation or
  2. If the allottee doesn’t intend to withdraw from the project, he shall be paid, interest every month of delay till handing over of the possession.

Rate of interest for default:

The rate of interest shall be the contractual rate of interest as may be mutually agreed to between the promoter and the allottee.

The rate of interest chargeable from the allottee by the promoter, in case of default by the allottee, shall be equal to the rate of interest which the promoter shall be liable to pay to the allottee, in case of default by the promoter.

Where no contractual rate is mutually agreed then the rate will be MCLR of SBI + 2%.

PENALTIES:

The penalties prescribed under the law are very stringent. The quantum of the penalty is summarized as below for various types of default:

Sr. No Nature of Default Quantum of penalty
1. Non registration as defined u/s 3 of the act. Up to 10% of the estimated cost.
2. Contravention of Section 4 i.e. details to be submitted at the time of registration Up to 5% of the estimated cost.
3. Contravention of other provisions of the act except Section 3 and 4 Up to 5% of the estimated cost.

(II) REAL ESTATE AGENTS:

Like the real estate promoters, real estate agents are also required to get themselves registered with the authority.

Under section 9 of the Act, it was prescribed that no real estate agent shall facilitate the sale or purchase or act on behalf of any person to facilitate the sale or purchase of any plot, apartment or building, being the real estate project registered u/s 3 of the act, without obtaining the registration.

Therefore, now the agents dealing in real estate projects which are registered u/s 3 of the act are required to get themselves registered with the authority.

Now, the above was for the purpose of dealing in real estate projects which are registered u/s 3 of the act. But suppose, the real estate project is liable for registration with the authority but the promoter does not get it registered then a registered real estate agent can involve himself into dealing with that project.

This is because section 9 of the act deals with only the real estate projects registered u/s 3 of the act.

The answer to the above question is in negative. Because section 10 of the act specifies that no real estate agent shall facilitate the sale, purchase of any plot, apartment or building unless it is being registered with the authority.

Registration fees:

  1. 10,000/- in case the applicant is an individual,
  2. 50,000/- in case the applicant is other than an individual.

The application for registration is to be made in writing to the Regulatory Authority in Form G, in triplicate (until the application procedure is made online).

The certificate will be issued as per Form H to the real estate agent.

The rejection of the application will be informed as per Form I. ‘

Validity of the registration:

The registration granted shall be valid for a period of five years.

At the time of granting of registration, a real estate will be provided his registration number and that registration number is required to be mentioned in every sale deal executed by him.

Above are the basics of the act with the rules and regulations specified by the respective authority.

P Chhajed & Co LLP, a renowned and Top Chartered Accountant Firm in Ahmedabad, is a Limited Liability Partnership Form of organization, a highest form of organization a Chartered Accountancy Firm is permitted to form.

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